“One of the biggest mistakes we made … is that we took the RUC … back in 1992 and gave it to the AMA. … It’s incredibly political, and it’s just human nature…the specialists that spend more money and have more time have a bigger impact.”

This was Tom Scully, former Bush II Administrator of the Centers for Medicare and Medicaid Services (CMS), previously the Health Care Finance Administration (HCFA). He was a panelist in a May 10, 2012 Senate Finance Committee RoundTable discussion by former HCFA/CMS Administrators and has become one of the RUC’s most outspoken critics. He was explaining how the American Medical Association’s (AMA) Relative Value Scale Update Committee (RUC), a group that asked if it could help the government by overseeing a valuation process for medical services, came to dominate and distort the pricing used in Medicare, Medicaid and commercial health plans.

“The idea that $100 billion in federal spending is based on fixed prices that go through an industry trade association in a process that is not open to the public is pretty wild. … Having the AMA run the process of fixing prices for Medicare was crazy from the beginning.”

It is remarkable and compelling to hear these federal health program ex-stewards express regret about a fiasco they had a hand in. Their “mea culpas” are almost palpable. Mr. Scully, in a recent Washington Post video interview, gave a quick aside, “It’s partially my fault.”

One of health care’s deeper mysteries is why third party administration (TPA) firms remain minor health plan players and, to a large degree, have been all but uncompetitive with the major health plans. Yes, the big plans have paid brokers more handsomely and have offered broader services, simplifying purchasing. But they have also offered mediocre-to-poor products at increasingly exorbitant cost. Why have TPAs as a group not distinguished themselves with better performance?

Most TPAs emerged as employer advocates, promising to protect their clients from the financially conflicted practices embraced by the major plans. But over time, many have become, as the term implies, administrators rather than managers, processing transactions without much focus on changing the ways that care and cost are delivered. Certainly in recent years, the majority have not attacked the egregious excesses that have made American health care so costly. Or to say it more simply, even though it has been in their clients’ interests, most have not done the hard work required to make health care cost less with better health outcomes, and so gain a quality and price advantage over their competitors. After all, there’s a good living to be had just putting together the coverage machinery processing claims.

With the recent release of two mainstream exposes, one in the Washington Post and another in the Washington Monthly, the American Medical Association’s (AMA) medical procedure valuation franchise, the Relative Value Scale Update Committee (RUC), has been exposed to the light of public scrutiny. “Special Deal,” Haley Sweetland Edwards’ piece in the Monthly, provides by far the more detailed and lucid explanation of the mechanics of the RUC’s arrangement with the Centers for Medicare and Medicaid Services (CMS). (It is also wittier. “The RUC, like that third Margarita, seemed like a good idea at the time.”)

For its part, the Post contributed valuable new information by calculating the difference between the time Medicare currently credits a physician for certain procedures and actual time spent. Many readers undoubtedly were shocked to learn that, while the RUC’s time valuations are often way off, in some cases physicians are paid for more than 24 hours of procedures in a single day. It is nice work if somebody else is paying for it.

A recent New York Timesarticle that focused on colonoscopies highlighted the questionable science, predatory unit pricing, and overutilization that characterize this procedure and much of US healthcare. Patients get routine screenings that, in other industrialized countries, cost one half to one thirtieth of what they do here, then are gobsmacked by bills equivalent to the cost of a good used car. Reporters and healthcare writers have covered this topic in all its intricacies thousands of times.

But Elizabeth Rosenthal, the Times reporter, zeroed in on the root of the crisis, which is how healthcare interests have shaped market and policy forces to their own ends. “The high price paid for colonoscopies mostly results not from top-notch patient care, according to interviews with health care experts and economists, but from business plans seeking to maximize revenue; haggling between hospitals and insurers that have no relation to the actual costs of performing the procedure; and lobbying, marketing and turf battles among specialists that increase patient fees.”

One result is that healthcare’s cost drivers are a multiheaded monster, frustrating simplistic solutions. Many physicians own a financial stake in the care they deliver, rather than being paid to manage the care process well. Pricing is typically unrelated to cost or quality, varies wildly among providers, and often comprises dozens of components that are impossible to understand beforehand. Insurance companies may make a percentage of total cost and so are incentivized to allow healthcare to cost more. Every level of the system is rigged.

Several physicians have reached out recently to discuss attractive employment offers from health systems. They are invariably conflicted. They understand the trade-offs, that they’ll give up the autonomy they’ve become accustomed to in exchange for more money and fewer practice management headaches. On the down side, they’ll be accountable for generating significant revenues, sometimes independent of care appropriateness.

Most also are aware that the same care services they provide now will be considerably more expensive once they’re part of a system. Many appreciate that because health systems are corporations with a heavy focus on optimizing short term gains, their future employer’s loyalty is suspect. And then there is the question of whether the health system’s management team is competently preparing to be sustainable in a market that could change dramatically.

As health systems maneuver to dominate regional markets, driving utilization and gaining more leverage over contractual pricing, physician employment has become their principal lever. Primary care physicians (PCPs) are now precious commodities that can manage populations and steer patients into the system’s services. Other specialties – e.g., cardiology, orthopedics, neurosurgery and even gynecologic oncology – are desirable if they’re high yield, driving lucrative, intensive use of inpatient and outpatient services.

My friend’s son, Joel Klepper, a student at the University of Oregon, sent his father a summary of a talk by the Dalai Lama at the university. I am not going to quote the whole report, brilliant as it is. But a few choice paragraphs illuminate the thought-provoking talk of this awe-inspiring religious leader. Here is the Dalai Lama on religion and compassion:

“He started by pointing out that all of the world’s major religions have compassion and love as their defining message, and pointed to the many people that all of the major religious traditions have produced who have used it as inspiration to devote their lives to compassion and the good of humanity. He was careful to differentiate between religion and religious institutions, saying it was the latter that was susceptible to corruption, and therefore it is the institutions that drive people away, but that generally that people don’t tend to have a problem with most core tenets, but that also as human understanding advances, it is critical that religion adapt itself, and not become mired in tradition or dogma when they clash with reality. Throughout, he was big on practicality and realism”.

The most surprising to me was the broad-mindedness of the leader of Tibetan Buddhism:

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Brian’s Note: My son Joel is a 34 year old 2nd-round student studying conflict resolution at Portland State University in Oregon. On Saturday, he went to an all day event that featured the Dalai Lama. Here is his report.

The Dalai Lama was amazing and everything I could have hoped for: warm, intelligent, modest and thoughtful. And funny. The venue was a sold out auditorium of 11,000. He began at 9:30 am in a panel discussion with two prominent environmental activists and Gov. Kitzhaber, who also really impressed me.

They talked about the environment, and identified our nation’s (and the worldwide) culture of endless, ever-expanding consumption as the root of the issue, with nods to the political realities of trying to re-engineer a currently existing economy towards a more sustainable model. The Dalai Lama mentioned how he speaks to scientists all over the world to get an idea of the latest understanding and technologies, but was quick to defer to experts on specifics, citing his lack of knowledge. He also spoke on income disparity, and how after a certain point, more money does nothing to increase your happiness, because it does nothing to address core human needs, and can actively work against you. He even went as far as to say that he was a Socialist and an economic Marxist, but that those ideologies cannot work without guaranteed and real freedom as an indispensable part of that framework.

On a recent call with a large manufacturer, my company’s team expected to describe how we develop primary care medical homes that become platforms for managing comprehensive health care clinical and financial risk. But the team on the other end of the phone beat us to it. Their remarks – that health care cost is a multi-headed monster that requires a broad array of simultaneously executed approaches – were a breath of fresh air.

They wanted to avoid approaches that don’t work or are designed to accrue to a vendor’s disproportionate financial advantage, and focus instead on mechanisms that measurably improve health and reduce cost. Their conventional current clinic vendor wasn’t onboard, philosophically or in terms of capabilities, and so wasn’t getting results. They were looking for a replacement vendor that could help them drive more appropriate care, with clear rules for patients and providers.

If primary care physicians have a bigger enemy than the RUC, Brian Klepper, PhD, hasn’t heard about it.

The American Medical Association’s (AMA) Relative Value Scale Update Committee (RUC) is a 31-physician panel that wields enormous influence with the Centers for Medicare & Medicaid Services (CMS) in setting the relative values of medical procedures, which are then used to determine reimbursement levels. CMS has historically accepted about 90% of the panel’s recommendations.

What is the path forward for physicians who want to remain in private practice, outside the constraints of health system employment? How will the environment change and what new demands will that place on practices and physicians? What follows are the observations of one industry-watcher who has worked on all sides of health care, but who now spends most his time focused on the interests of those who pay for it. No crystal ball, but several trends are clear.

There are now concrete signs that health care’s purchasers are exhausted and seeking new solutions, that a competitive marketplace is emerging and getting increasing traction. As they abandon ineffective approaches, the paradigm that has dominated the industry for the past 50 years will be upended. The financial pressure felt by buyers will transfer to the supply side health industry that has come to take ever more money for granted.

For decades, fee-for-service payment, inclusive health plan networks, and a lack of quality, safety and cost transparency have been enforced by health industry influence over policy, effectively neutralizing the power of market forces.

Without market pressure, physicians have felt little need to understand their own performance relative to that of their peers. The variation of physician practice patterns within specialties has been high, with some physicians’ “optimizing their revenue opportunities” by veering wildly away from evidence-based practice. Even so, until recently in this dysfunctional environment, it has been nearly impossible to identify high and low performers.

If necessity is the mother of invention, then tentativeness and ambiguity are the parents of procrastination. In health care, fee-for-service remains the dominant paradigm, so the ACO movement, lacking almost any semblance of true financial risk, is far more bark than bite. What’s the point of health systems going to all the trouble – and there’s no question it will be an overwhelmingly complicated overhaul – required to move from volume to value if it isn’t a pressing concern? Or, as several health system CFOs have expressed it, “Why should we change what we do and take less money until we have to.” There is no immediate imperative.

But there are some strategic imperatives. Overall health care cost has continued to explode. Kaiser Family Foundation data show that, for more than a decade, health plan premiums have risen 4.5 times as fast as general inflation and more than 3.5 times workers earnings. A recent RAND calculation showed that $4 of every $5 of household income growth is now absorbed by health care. It doesn’t seem likely that much more revenue can be squeezed from group and individual purchasers. (Though many of us have been saying that for decades.)

Last week I visited with Gary Rost, an unassumingly knowledgeable man and the Executive Director of the Savannah Business Group (SBG), arguably one of the most effective health care coalitions in the country. Their offices are only a couple hours away from my home on the Northeast Florida coast, so it was a quick trip up.

SBG was founded in 1982 as a way of mobilizing employer buying power for better care at lower cost. Its reach now extends beyond Savannah about an hour south, north into South Carolina and west from the coast. The vision described on its site is straightforward and easy for purchasers to appreciate:

For a large and growing number of us with meager or no coverage, health care is the ultimate “gotcha.” Events conspire, we receive care and then are on the hook for a car- or house-sized bill. There are few alternatives except going without or going broke.

Steven Brill’s recent Time cover story clearly detailed the predatory health care pricing that has been ruinous for many rank-and-file Americans. In Brill’s report, a key mechanism, the hospital chargemaster, with pricing “devoid of any calculation related to cost,” facilitated US health care’s rise to become the nation’s largest and wealthiest industry. His recommendations, like Medicare for all with price controls, seem sensible and compelling.

But efforts to implement Brill’s ideas, on their own, would likely fail, just as many others have, because he does not fully acknowledge the deeper roots of health care’s power. He does not adequately follow the money, question how the industry came to operate a core social function in such a self-interested fashion or pursue why it has been so difficult to dislodge its abuses. For that, we need to turn our attention to a far more intractable and frightening problem: lobbying and the capture of regulation that dictates how American health care works.

This beautifully written letter was forwarded after an interview with me on health care cost appeared in a Florida newspaper.

Many of us with coverage often think in abstract terms about working families that do not have access to employer-sponsored coverage, and that must shoulder the overwhelming burden of costs on their own. As Mrs. Doss describes, health care costs dominate her family’s economic life and drive many of their most important decisions.

Tullman recalls building EHRs that moved many physicians away from paper and the errors it fosters. He calls out David C. Kibbe, MD as an example of the forces wanting to preserve paper and opposing EHRs, with quotes from a 2008 blog post suggesting that the current crop are “notoriously expensive,” “difficult to implement” and unable to demonstrate care quality improvements. He predicts that, in the future, the industry will leverage open platforms and interoperability, yielding new monitoring and management utilities that can facilitate better care at lower cost.

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